Department of Employment v. United States
Headline: Court affirms that the American Red Cross is a federal instrumentality and blocks Colorado from taxing its unemployment-compensation payroll, preserving tax immunity and refunds for the charity.
Holding: The Court held that the American Red Cross is a federal instrumentality immune from state taxation on its operations and that Congress did not waive that immunity in the 1960 unemployment-tax amendments.
- Prevents Colorado from collecting unemployment tax from the Red Cross.
- Requires refund of contested taxes paid under protest.
- Protects similar federal instrumentalities from state unemployment taxes.
Summary
Background
The dispute involved the State of Colorado’s Employment Security Act, which imposed an unemployment-compensation tax measured by wages paid by charitable institutions. Colorado’s Department of Employment sought to collect that tax from wages paid to Colorado-based employees of the American National Red Cross. The Red Cross, joined by the United States, claimed it was a federal instrumentality immune from such state taxation, paid more than $10,000 under protest, had refund requests denied, and sued in a three-judge federal district court to stop enforcement of the Colorado law.
Reasoning
The central question was whether the Red Cross is closely enough tied to the Federal Government to be immune from state taxation and whether Congress waived any such immunity in the 1960 amendments to the federal unemployment-tax law. The Court found that the Red Cross was chartered by Congress, is subject to government supervision and Defense Department audit, has its principal officer and several governors appointed by the President, performs duties under the Geneva Conventions, aids the Armed Forces and disaster relief, and receives substantial federal assistance. The Court concluded these ties make the Red Cross a federal instrumentality for tax-immunity purposes and that Congress did not intend the 1960 amendments to strip that immunity; statutory language and legislative history supported preserving the exemption.
Real world impact
The ruling affirms the district court’s order for refunds and bars Colorado from enforcing the unemployment-compensation tax against the Red Cross. It preserves similar protections for other nongovernment entities that the statute and history show are federal instrumentalities. The Court also rejected state procedural bars to the United States’ suit to protect its instrumentalities.
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